Falling to Earth

Brace yourself. Southwest Florida's 2006 outlook loses some luster as rising energy prices and natural disasters take their toll on the nation and the region. In our annual check-in with forecasters and industry insiders, the message is clear: The area's strongest industries-tourism and real estate-won't be as strong as in years past, while other sectors such as agriculture and technology continue to face their own challenges. Add to that questions about inflation and interest rates, and the uncertainty rises.

The national economy will be "substantially weaker" in 2006 and 2007 because of the high oil prices and interest rates, says Hank Fishkind, founder of Fishkind & Associates, an Orlando-based economic consulting firm. Slower U.S. economic growth is expected to affect Florida in the second half of 2006, according to the firm's data.

Real Estate

Higher interest rates will weaken the Sunshine State's real estate sector. As for Southwest Florida, "I think we're reaching a plateau in the housing market," Fishkind says. The market has been "extra strong," but his firm forecasts a drop in single-family and multifamily housing starting next year.

"I think there'll be some deflating," Fishkind says, adding that sales volumes will decline and prices will flatten out. "We'll see volume come down the next few years because mortgage rates will continue to rise."

Southwest Florida has some positive factors, such as the expansion of Southwest Florida International Airport and a continuing population boom in Lee County. As coastal areas fill with development and few large, undeveloped tracts remain, growth will peak and spread to the northern parts of the region, according to Fishkind.

But the region, with a narrow economic base that is slow to diversify, still faces hurdles, he adds. The development of commercial activity around the airport will fuel some job growth, but that will be offset by the changes in construction and tourism, which are expected to falter because of a slowdown in the national economy and the impact of higher energy prices on consumer spending. "Overall, job growth will slow a bit," he says.

Tourism

The region's tourism industry enjoyed a very strong summer until August, when the tapering off of seasonal visits combined with stormy weather to create a slowdown, says Walter Klages, president of the Klages Group, a Tampa-based market and economic research company. In addition, Southwest Florida didn't receive a noticeable spillover of visitors after Katrina, as it might have in the wake of other storms, he says.

The challenge is partly psychological. The brutal scenes of hurricane-ravaged areas are "affecting the minds of people," he says. "They feel this is not the time to go out and have a good time." Another factor is increasing talk that the housing bubble could deflate, which presents the "specter of potential trouble."

However, booking for the winter season has been strong, so Klages anticipates that business in the coming year will be fairly brisk in both the convention and seasonal visitor markets. Overall, 2006 will be "fairly stable" with a moderate to high rise in room rates, he says.

The positive side is that the European market continues to be strong, Klages says. Barring any more terrorist attacks, the U.S. is still perceived as a safe destination, especially for those who would otherwise be spending their vacation dollars in places like Bali, Spain and the African coast, he says.

In addition, marketing programs have been extremely effective, as the 4 percent resort tax in Collier has generated more marketing dollars to promote the area, Klages says. "This is the time not just to reassure the traditional and repeat market, but we need to mine new markets."

Agriculture

The five-county region has about 1.5 million acres dedicated to agriculture, comprising about 40 percent of the total land area. The majority, about 1.1 million acres, is devoted to pastures, while sugar cane, vegetables, citrus and ornamentals share the remaining acreage, according to 2000 figures, which University of Florida agriculture economics professor Fritz Roka says are reflective of the region today.

Citrus canker, which causes premature leaf and fruit drop, and citrus greening, an incurable bacterial disease that attacks the vascular systems of plants, are two devastating diseases afflicting businesses. "The citrus industry right now is in pretty tough shape," says Roka, who works at the University of Florida's Southwest Florida Research and Education Center in Immokalee. "Then you add to that high real estate values, and a lot of people are giving serious thought to exiting the industry."

Canker is starting to re-encroach on the area, after being beat out in 1998. Roka says four groves along S.R. 29 between Immokalee and LaBelle in 2005 were affected by canker. Preliminary estimates from the agriculture commissioner's office are that Hurricane Wilma caused more than $1 billion in damage.

There also is concern regarding the availability of workers. Those worries are increasing because the "hyperactivity" in home construction has created a bidding war for labor, says Roka.

He adds that mechanical harvesting will be vital to the future of the industry. It could reduce harvesting costs and help groves compete with low-cost producers overseas. The silver lining in canker eradication is that "when the groves come back, they will be replanted with mechanical harvesting in mind," he says. Roka believes that mechanical harvesting will emerge as the system of choice over the next five to eight years. "It's not going to take over the industry overnight," he says.

Technology

The region's small businesses will keep growing into large businesses, as seen with Naples-based ASG Software Solutions and Neighborhood America and Fort Myers-based Miva Inc.

As far as large companies relocating to the area, Judy Wynekoop, professor of information systems at Florida Gulf Coast University, says she doesn't see that happening, at least not in the next 10 to 15 years. By that time, FGCU will have established itself as more of a research center, and companies will be able to see the area "as a place where they'd like to relocate."

The region must further develop its tech industry, says Janusz Zalewski, professor of computer science at FGCU. "My view is rather pessimistic," he says. "In Southwest Florida, we are not very technologically advanced. We are technologically underprivileged. That has to change."

The area lacks research labs and firms creating software innovations, Zalewski says, and he fails to see any signs of local companies working together toward a common goal, such as strengthening this sector of the economy. "They are isolated from each other," he says.

Zalewski and his colleagues struggle between being overwhelmed by the teaching load and wanting to do research, which will bring dollars into the university. "We don't have time to focus on research," he says.

In addition, he doesn't get the sense that the region's firms want to be a partner in research efforts. "The local companies do not believe the university can help them in any way in regard to technological innovation," he says.

Summing Up

As with the agriculture industry, labor continues to be an issue in sectors of the region's economy. "They can't find the people that they want," says Wynekoop. "Basically the university isn't producing them fast enough."

One of the challenges is the difference in salaries in Southwest Florida compared to other metropolitan areas. Graduates report to her that they're being offered 10 percent less here than what they could earn elsewhere.

But overall, Fishkind says, the region's fast growth has created tremendous business opportunities, and those will still exist in the coming years. "We're just talking about growing more slowly," he says.